HDFC Limited 2020 Annual report Takeaways!

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HDFC ltd: The value of PRUDENCE.

  • What is it that differentiates this crisis from others? “HHEF” : Heath, Humanitarian, Economic & Financial crisis morphed into each other.
  • The crisis reinstigates the value of a home & people will go to any lengths to hold onto it.
  • Timeless Wisdom by Mr. Deepak Parekh, Chairman, HDFC:
  • For FY20, HDFC was focused on the Affordable Housing segment.
    • Continued to support the government’s flagship housing programme, the CLSS scheme (focused on low & middle-income home loan borrowers).
    • Disbursed to 2lakh+ customers under the scheme.
  • Risk averseness in lending & choking credit wherever needed was undertaken for the year. Specially towards non-individual loans.
  • Few long standing relationships were broken, when hardships came upon them (adequately backed by security). Legal system created an obstacle in recovery. Could be soon resolved. As a result asset quality worsened.
  • Position is considerably stronger than most of the peers.
  • Will do a capital raise in the upcoming quarters:
    • Inorganic opportunities emerging for group companies.
    • Some of the Subsidiary companies will need additional capital for their expansion plans.
    • Have Identified new investment opportunities that will help build the next generation of value creators for HDFC group.
  • The saga of the Supreme Court questioning the RBI on moratorium was unfortunate. The central bank is not answerable to a court on basic principles which the financial sector operates on. Interest payments on borrowings & loans are contractual obligations. No laws are being violated.
  • The construction sector is important as it is the second largest employment generator & has multiplier effects through its extensive backward & forward linkages with other industries.
  • With global interest rates being low, relaxation of ECB (External Commercial Borrowing) guidelines could help raise large resources for affordable housing.
  • The RBI should allow one-time restructuring for real estate loans while allowing to categorise them as standard assets (In the current rule: the additional funding required for the viability of an incomplete RE project is also considered as NPA including the initial outstanding)
    • Bailout packages for the sector should be avoided.
  • AUM: Rs 516773 crs (PY: Rs 461913 crs). 
  • Loans Outstanding: Rs 450903 crs (PY: Rs 406607 crs) 
    • Individual loan books grew by 14%.
  • Deposits outstanding: Rs 132324 crs (PY: Rs 105599 crs) :gained immensely due to weak outlook on small & medium private sector banks. (NHB fixed rule of HFC’s deposits to be less than 3 times net owned funds)
  • Capital Adequacy Ratio (CAR): 17.6% (Tier 1 capital: 16.5%) 
    • Minimum requirement stipulated by RBI for HFCs is 13% which will increase to 14% in Mar, 2021 & 15% in Mar, 2022.
  • Cost to Income ratio: 9% (Lowest in the financial sector in Asia)
  • Subsidiaries: A bunch of wealth- creators & hopefully will continue to do so.
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  • Salary increase of key management personnel is inline with subdued performance:
  • Residential units which received a favourable response from Homebuyers:
    • Reputed developer with strong past track record of delivery.
    • Projects with financial closure through stable financial partners.
    • Right sized units.
    • Right priced units which were affordable by end users.
  • Though aspirations for owning their home remain high for the average Indian, the dichotomy has been an unsold inventory valued at Rs 3.7 lakh crs & lack of last mile funding for the under-construction units. The Government set up a Rs 25000 crs fund for the latter.
  • Demand persisted for grade A commercial real estate mainly from banking, financial services & insurance, IT & IT-enabled services, e-commerce & other professional services.
    • A dark horse segment that gained traction was the logistics & warehousing sector getting more organised & tech enabled.
  • HDFC recorded a fair value gain of Rs 9020 crs in Gruh & a 9.90% capital of Bandhan Bank due to their merger.
  • HDFC Loan Sourcing: Number of Loan outlets- 585
    • HDFC ltd: 54%
    • HDFC Bank: 26%
    • Other Direct selling agent: 17%
    • Direct Walk-in: 3%
  • Technology: Integrated Natural Language Processing (NLP) & Machine Learning (ML) with its website chatbots to understand & analyse user intent, thereby effectively responding to user interaction.
  • The most important thing: Consistency.
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The post HDFC Limited 2020 Annual report Takeaways! appeared first on JST Investments.

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